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Tax saving v/s TAX PLANNING

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With hardly Few days left for the end of the financial year, most taxpayers tend to rush into putting their oney into something with the sole objective of saving tax for the current year. As long as investing in the chosen instrument results in getting the tax deduction, their immediate purpose is solved.

The result of this is, at the end of the day, you end up tax saving but not tax planning. The planning process is a bit more involved and entails some amount of advance preparation in anticipation of the tax return filing exercise.

For Return Filing Pan is mandatory But return is not mandatory for PAN holder :Let’s start with the PAN. Many taxpayers seem to be under the impression that having a PAN makes it mandatory for them to file the tax return. The issue has especially come up ever since PAN was made compulsory for investing in shares and mutual funds. There are many who feel that now that they have been allotted a PAN, return filing would also be a must, irrespective of whether or not they have any taxable income.

This is a misconception. Though a taxpayer needs to have a PAN to file the tax return, the reverse is not true.

Filing a tax return is obligatory, if and only if one earns an income above the basic exemption limits. For FY

if your income is lesser, irrespective if whether you have been allotted a PAN or not, you need not file a tax return.Note that the term ‘income’ in the above paragraph refers to gross income i.e. your income before

reducing any tax deductions. This was a change that was carried out a while back. Earlier, if your income ‘after’ considering deductions such as PPF, NSC, Mediclaim, and so on was above the basic exemption, then filing tax return was mandatory. Now, income ‘before’ considering the deductions will have to be considered. This is a significant development and better explained by means of an example.

Let’s take the case of Mr. Pathak, a senior citizen. His income statement is as under:

Gross Income:340000

less deduction 80C (saving ppf ,life insurance etc)=100000

Net taxable Income =340000-100000=240000

Earlier, Mr. Pathak would not have been liable to file his tax return as his net income did not exceed the basic

exemption limit of `2,40,000.However, now, income before deduction is to be considered and that is `3,40,000 in Mr. Pathak’s case. This amount being more than `2,40,000, Mr. Pathak will compulsorily need to file the tax return.

Note that in both the cases, the tax payable by Mr. Pathak remains nil. Putting it differently, though he is not liable to pay any tax to the government, Mr. Pathak will need to file a nil tax return.

Having a PAN is a must for filing tax returns. Without PAN, the tax department will not accept your returns.Therefore, if you do not have a PAN, you will have to apply for one. You have to use Form 49A for the purpose. Check out http://www.tin-nsdl.com for more details on this.

Help your Chartered Accountant

This is one point that I keep on emphasising ever so often and the reason thereof is that it is largely ignored by taxpayers. Subject to exceptions, a typical taxpayer tends to procrastinate collating the information required for the purpose of return filing. Though we have four months (April to July), most wake up only in the last month. Some even wait for the last week. And remember, this is only the act of handing over the files and other miscellaneous papers. The actual work of sorting these and capturing the relevant figures yet remains to be done. The end result is often sub-optimal, it neither benefits the taxpayer nor the CA, and due to the sheer paucity of time, often one may even end up paying more tax than what was actually initially due.

The ironical thing is that the solution to the problem is ridiculously simple. The following are a couple of simple measures that every taxpayer can adopt to smoothen the entire process and at the same time make the tax return accurate and free of any potential inquires and scrutiny from the tax department.

Duplicating the bank passbook :Your bank passbook is the backbone of your tax return. The deposits and withdrawals contained therein largely determine your tax liability. Some incomes are taxable, whereas some are specifically exempted and yet others are capital receipts that are not to be taxed at all. In terms of expenses, depending upon your category (whether salaried or a businessman or professional), certain expenses are allowable and certain others are not. Payments eligible for specific tax benefits can also be picked up from the passbook. Even capital gains can be computed based on the entries in the passbook. Therefore, it will help if you maintain a parallel passbook. At the end of each month, get the pass book updated and duplicate the same at your end. Make sure that each amount is accompanied with a brief explanation of what it actually represents. Determining the taxability thereof is your CA’s job. As soon as the financial year ends, just hand this over to your CA and be assured that the return will be filed in no time.

TDS certificates :This is the other area of inefficiency.TDS is like tax paid in advance, the amount of TDS has to be reduced from your final tax liability and only the net balance is payable. However,this cannot be done if you do not have proof of the same. In other words, without the TDS certificate,you will end up subjecting yourself to double taxation. Though the new tax filing forms (ITR series) do not require the TDS certificate itself to be attached, the payment-wise details contained therein along with the deductor’s TAN (Tax Deduction Account Number, and so on.) have to be provided. Now, without the relevant certificate, you cannot get this information. So, the thing to do is to determine on an ongoing basis,which particular income or incomes are subjected to TDS and as soon as the fiscal year is over, start following up on obtaining the certificates from the organisation or entity that has deducted the tax.

As mentioned before, these above points have been made earlier but are being repeated since it is my experience that most taxpayers do not take the trouble of actually doing it. If you start now, come July 2011 filing tax returns would be incredibly easy.

By : A N SHANBAG

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